Econ 101 test 2
suppose that Michelle buys a cappuccino from pauls cafe for $4.75. Michelle was willing to pay up to $7.75 for the cappuccino. and pauls cafe was willing to accept $.75 for the cappucino. michelles consumer surplus is ________ and pauls cafes producer surplus is _______
$3 $4
Explict cost
a cost that involves spending money
the demand for cigs is highly price inelastic and the supply of cigs is very elastic. if an excise tax is levied on cig producers, which of the following is true?
a high share of the tax burden is going to be borne by buyers of cigs
how many firms are there in a perfect competition?
a large number
implicit cost
a non-monetary opportunity cost
suppose that to make bread affordable for low income consumers, the government imposes a price ceiling on bread. what occurs?
a shortage of bread becuase the quantity demanded exceeds quantity supplied at that low price
demand for salt is inelastic because a change in price does not affect quantity demanded a lot. an excise tax on salt is borne mainly by:
consumers(buyers)
individuals=
demand
the long run is best defined as a time period
during which all inputs can be varied.
the principal of diminished marginal utility means
each successive unit of a good or service consumed adds less or total utility than the previous unit
the average total cost takes an 'U' shape in the long run because, as production increases
firms enjoy increasing returns to scale up to some point and then decreasing returns to scale
oppourtunity cost
implicit when you can measure its actual value otherwise = implicit+explicit
it can be shown that the short-run individual supply curve of a firm is
its marginal cost curve above the shut-down price
perfect competition
large number of firms with the same product
assume fixed cost is nonzero. the cost of producing one more unit of a good or service is called
marginal cost
elastic demand
produced bear more of tax
monoplastic competition
product differentiation in a large number of firms
the relationship between the factors of production used by a firm and the maximum output possible is called the
production function
zero economic & normal profit
refer to the same concept
An explicit cost
requires an outlay of money
profit
revenue - cost
A recent study found that in the long run ( assumed to be more that one year), the price elasticity of demand for gasoline is -.58 in Massachusetts. If Massachusetts were to double its gasoline tax its revenue from the tax would:
rise but not double
total fixed cost
the sum of those costs that are fixed in total - no matter how much is produced
total opportunity cost is
the sum of total explicit and total implicit costs
average total cost
total cost divided by the quantity of output
economic profit
total revenue minus total cost, including both explicit and implicit costs
accounting profit
total revenue minus total explicit cost
how economist make an 'either or' decision
when faced with a choice between two activities, choose the one with positive economic profit
how economist make a 'how much' decision?
when faced with a profit maximiaing 'how much' decision, the optimal quantity is the largest quantity at which the marginal benefit is greater than or equal to marginal cost
gains from trade depend on
comparative advantage
a situation where an additional unit of a good or service costs the same as each of the former units
constant marginal cost
inelastic demand
consumers bear more tax
total profit can be expressed in terms of profit per unit as
(P-ATC)*Q
mr. patrick stars total utility from eating a slice of pizza is 10. his total utility from eating the second slice is 15. what is his marginal utility for the second slice of pizza?
5
a firm maximizes profit where
MC=MR, and MC curvve cuts Marginal Revenue curve from below
what is the rule that rational consumers apply to choose the utility maximizing consumption of two goods x and y
MUx/Px=MUy/Py
additional benefits to domestic suppliers after the government imposes an import tariff
above the domestic supply curve under the demand curve, between the world w/ tariff and world w/o tariff
what reason is generally NOT considered as advantage of international trade?
allows inefficient companies to make higher profits
what is true about the economies of taxes?
an excise tax can distort incentives and create missed opportunities for mutually beneficial transactions
the average total cost takes an 'U' shape in the short run because, as production increases:
average fixed cost decreases but average variable cost increases
peter griffin recently started a new job that doubles his income. how his change in income affects his budget line?
budget line shifts to the right
Elasticity
change in quantity/change in price
marginal cost is the
change in total cost for a one unit change in output
marginal
change in total/change in quantity
how can sunk cost play a role in making decisions about future actions?
sunk cost does not affect the decision-making, because it is not included in marginal cost
firms=
supply
marginal benefit
the additional benefit to a consumer from consuming one more unit of a good or service
consumer surplus
the amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it, area below the demand curve and above the market price
producer surplus
the amount a seller is paid for a good minus the seller's cost of providing it, area above the supply curve below the market price
which of the statements is true
the competitive firm has no influence over the price
marginal cost
the cost of producing one more unit of a good
marginal utility or benefit decreases as you consume more and more of the same product. you keep consuming a product until your marginal utility from consumption equates marginal cost of the marginal cost of product. What occurs if you consume more than the optimal quantity?
the extra benefit you get from another unit is no longer worth the cost
under a perfect competition, the break even price of is
the market price at which it earns zero economic profits
